“Germany came to a fork in the road and didn’t take it,” the former Indiana Republican senator said of the Sept. 18 election, in which Chancellor Gerhard Schroeder and his conservative rival, Angela Merkel, ended up in a virtual deadlock. “Now they’ve got a divided people and government, with the two major parties both losing ground and facing extreme difficulty in forming a coalition government.

“The ultimate result is a stalemate and a continuation of years of economic stagnation and foreign-policy drift that will have a major impact on U.S.-German relations as well as Germany’s role in Europe,” he added.

The former senator indicated he was particularly disappointed that Merkel, whose center-right Christian Democratic Union and a sister party in Bavaria got only nine-tenths of a percent more votes than Schroeder’s center-left Social Democrats, failed to win a convincing victory.

“It’s no secret that Merkel could have opened a positive new chapter in U.S.-German relations after years of economic stagnation and curious foreign-policy decisions on the part of Schoeder,” Coats said in an interview in his office, just down Pennsylvania Avenue from the White House, at the law firm King & Spalding, where he is senior counsel.

In one of his first public comments since stepping down in March after four years as America’s top diplomat in Germany, Coats made it clear that Merkel’s failure to win a clear-cut victory that would allow her to replace the unpopular Schroeder as chancellor does not bode well for Germany, either in terms of its ties to the U.S. or its future place in the world.

Pointing out that U.S.-German relations were damaged in the 2002 German elections when Schroeder was sharply critical of U.S. policy in Iraq, Coats said the “good feeling” that existed in the wake of Sept. 11, when German citizens left flowers and messages of condolence at the U.S. Embassy in Berlin, “went by the boards after the chancellor promised to support the president and then exploited the anti-war issue.”

He added, “There is a possibility that Merkel will be able to cobble together a governing coalition, but it will be extremely difficult.

“A grand coalition is possible, but it is hard to see how Germany can move forward with any clear agenda. We’re going to have to wait several weeks before we know which coalition will win. Anything is possible. Whatever coalition that emerges is going to be constrained by such a narrow margin that it will make it very difficult to carry out the necessary economic reforms and move back toward us.”

Coats also expressed doubt that Germany will be able to regain its role as the economic engine of Europe if the election stalemate continues.

“European economic fortunes are so dependent on a strong German economy, but all this [election uncertainty] points to continued weakness of the German economy. A strong Germany leading a strong Europe is in our best interests, but that is now open to question.”

Coats, who returned a day earlier from his first visit to Germany since resigning as ambassador, said he found “gloom and frustration” over the election outcome among Germans.

“That was best expressed by a German who told me Merkel needed a clear mandate to move the country forward but didn’t get it.”

Asked to assess his four years in Berlin, Coats called his ambassadorial tenure “one of the best experiences of my life” but said he regrets Schroeder’s distancing himself from the United States on Iraq. “It made it a very difficult time for me,” Coats said.

Coats, who represents a number of U.S. companies doing business in Germany as well as the state of Indiana in its effort to save military bases from being closed, declined to offer an assessment of Senate Majority Leader Bill Frist (R-Tenn.).

“I’m going to pass on that,” he said, before adding, “Let me say this: Having served under George Mitchell [D-Maine], Bob Dole [R-Kan.] and Trent Lott [R-Miss.] as majority leaders, it’s the second hardest job in Washington” — right behind president.

Coats said the Senate “became a whole different institution” during the 10 years he served after succeeding Republican Dan Quayle in 1989. “It became more and more difficult to forge consensus,” he said. “It was very ideologically split and very politically divided.”

Referring to the fight over the confirmation of Judge John Roberts as chief justice of the United States, Coats said, “I was amazed to pick up The Washington Post today and see the headline, ‘Democrats vow to oppose next nominee.’ I was part of a strong majority that felt the president was entitled to choose anybody he wanted, absent some compelling reason [to reject him/her]. It all started with Robert Bork and has just gotten worse.”

Asked if he supports any Republican presidential candidate in 2008, Coats said, “No, let’s get through 2006 first. It will be a challenge for the Republicans.”